FISCUS MORTGAGES - INFORMATION AND ADVICE

Portuguese Property Mortgage

PURCHASING PORTUGUESE PROPERTY

A point that we stress for all overseas property acquisition is to make sure that you have English-speaking legal representation conversant in the specific laws of the property’s country, in this case Portugal. This ensures that you are kept abreast of the situation at all timebeings and that the process pans out as smoothly as possible.

Please note that in Portugal the government operates a licensing system for estate agents. It is in your interests to confirm that any agent you deal with is fully licensed and can produce an AMI number upon request.

GUIDE TO PURCHASING, HOW MUCH CAN YOU BORROW

Contrato de Promessa de Compra e Venda (Preliminary Contract)

Assuming a price has been agreed between you and the seller, the first step of the process involves entering into a preliminary contract. This is known as the Contrato de Promessa de Compra e Venda, literally translating as the ‘contract of promise of buyer and seller’ and is signed with a Public Notary in attendance.

For this contractual guarantee, the buyer will typically put down a deposit of 10% of the agreed purchase price, although the required deposit varies considerably depending on the price agreed, the location of the property and the agent you are working with. Once the Contrato de Promessa has been signed by both parties, the property has been legally secured by the purchaser, protecting both you and the vendor. If you were to walk away from the deal after this contract has been signed, you would forfeit your deposit. Conversely, if the vendor decided to back out of the deal, they would be liable to pay you double the value of the deposit.

Documents required for the Contrato de Promessa

Before signing the Contrato de Promessa there are a number of checks that need to be carried out and several legal documents that need to be produced. You should begin by going to the local Conservatória do Registo Perdial, which is the Portuguese equivalent of the Land Registry. Here you can confirm current ownership rights of the property in question and see if there are any outstanding mortgages or charges on the Portuguese property. This information will be provided to you in a document called the Certidão de Teor, which is the ‘Property Registration Certificate’.

The next document you need to obtain is the Licença de Utilização, which is the ‘Licence of Use’. This states the recorded purpose of the building you are considering; if you are purchasing residential property in Portugal then you will need to ensure that it has a licence of habitation. This record can be obtained from the local Town Hall.

You will also need to obtain the ‘Property Tax document’, known in Portugal as the Caderneta Perdial. This will be able to tell you how much your annual property tax will be. It informs you of the category the tax office places the building in (residential, commercial or industrial), the current owner and his tax details, and the property’s fiscal number. For new constructions, the building developer should be able to provide a temporary tax certificate.

All the aforementioned documents will need to be produced when the Contrato de Promessa de Compra e Venda is signed.

Escritura de compra e venda (Final Contract)

The Escritura de compra e venda is in effect, Completion. On average, it takes about 4 weeks between the signing of the preliminary contract and completion. Like the preliminary Contrato de Promessa, the Escritura de compra e venda must be signed in the presence of a notary.

You will be required to pay the outstanding balance owed on the Portuguese property at this time. There are also some additional costs that you will be required to pay at the date of completion:

- Imposto de Sisa – This is the Portuguese property purchase tax, or transfer tax (see tax implications below).
- Notary advogado – The purchaser will have to pay the notarial / legal fees.
- Insurance – Upon signing the Escritura de compra e venda, in essence the Title Deed, you will be immediately liable for the insurance of your new Portugese home. Typical Portuguese policies should include fire, storm and flood damage.

Once the Escritura de compra e venda is signed, the property is yours; it is registered in your name at the Conservatória do Registo Perdial (Land Registry) and local Tax Office. This is done through the Registo document, which is filed with both organisations.

A TIP ON BUYING PROPERTY IN PORTUGAL

Although it is not necessary, we would recommend that you open a bank account in Portugal. There are numerous foreign / international commercial banks in Portugal, and this provides a low-cost method of transferring funds between Portugal and Britain.

It is worth developing a fund in your Portuguese account that can pay the necessary taxes and bills that build up on the house. It would allow your tenant to pay rent directly into a local account, and from this the local rates and bills could be paid. It should also reduce the number of times you convert currency between Sterling and Euros, thus saving you commission.

You will require a Numero fiscal de contribuinte (tax number) to own Portuguese property. A possible benefit of opening a bank account is that banks will often assign individuals a Numero fiscal de contribuinte as soon as they open a new account. This may make life a little bit simpler than having to chase up a tax number at a later date.

IMPORTANT TAX IMPLICATIONS OF PURCHASING PORTUGUESE PROPERTY

When you buy property in Portugal, you can look forward to a transfer tax called MTT, which can be up to 6% of the purchase price. On top of this, you can expect to pay Stamp Duty of 0.8% of the value of the property.

Once the property is yours, expect to pay an annual tax of 0.2% - 0.8% of the property value. This valuation is calculated by your local Portuguese council, and is generally 80%-90% of the market value of the house.

There is an upside when it comes to Inheritance Tax though. Since 1 January 2004, Inheritance Tax was abolished in Portugal. However, when transferring assets you should still expect to pay stamp duty at 10%, although transfers to a spouse, children, grandchildren and parents are exempt. Of course, there is still the British Inland Revenue to worry about. Unless Portugal is your nation of residence, expect to pay British Inheritance Tax on any assets you pass onto others.

The only other major consideration is the flat-rate 25% charged on capital gains made by non-residents. If you factor all of these into your calculations on, say, a £500,000 property, you find that the tax payable when you purchase the property is £34,000. Once the property is yours, expect to pay annual taxes in the region of £2,250.

YOUR NEXT STEPS

We advise against making your decision based solely on the information you have read. The best option is to speak to an Independent Financial Adviser (IFA) who can hunt around for deals that are best suited to your individual circumstances. If you would like to speak to an IFA, please complete our brief mortgage enquiry form and we will have one telephone you within 24 hours.